Case T19

Judges: KL Beddoe Ch

P Gerber M
GW Beck M

Court:
No. 3 Board of Review

Judgment date: 15 April 1986.

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Dr P. Gerber (Member)

The taxpayers in this case are husband and wife, the parents of four children, three of whom were at the relevant time infants in law. At the outset it was agreed that the hearing in one case would resolve the issue in the others.

2. In 1978 the husband taxpayer left his employment of some 15 years and received a lump sum amounting in all to approximately $11,000. After discussing the disposition of these funds with his wife, the couple decided to use some $5,000 to pay off their home and to open two accounts with the Tasmanian Police Association Credit Union.

3. The accounts have been referred to in evidence as the term accounts. I shall refer to them henceforth as ``the children's account'' and ``the on-call account''. The former, that is the children's account, was entered in a blue passbook in the name of Michelle Smith, Marcus Smith and Rachael Smith.

4. The on-call account, being a green passbook, was opened in the name of Geoffrey and Sylvia Smith in trust for Michelle, Marcus and Rachael Smith. The interest from this account, that is the on-call account, is not in issue before us. The contest centres on the interest derived from the children's account, that is the term account which it was deposed was intended for the use of the three children, Michelle, Marcus and Rachael, for their educational needs.

5. No withdrawals from this account were ever made and the interest accumulated at compound interest. In 1983, the Commissioner included income from this account in the assessments and/or amended assessments of the taxpayers for the years 1979 to 1982 inclusive, asserting that the income was income as to 50 per cent of the husband's and 50 per cent of the wife's.

6. In addition, he imposed a penalty pursuant to sec. 226 equal to roughly 40 per cent of the tax allegedly avoided. The objection is tightly drawn. Suffice it for present purposes, that no objection was taken to the imposition of the penalties, year by year, nor to the assessment of interest on the on-call account.

7. The facts fall into short compass: two loan applications were made by one of the taxpayers, listing as part of the family assets the amount in the children's account, and on one other occasion, an amount of $1,500 in the children's account was frozen as collateral.

8. The other fact of some relevance is that when the Commissioner issued his amended assessments in 1983, the taxpayers, who had relied on advice from the Police Credit Union, felt that the union ``had rather made a muck of it'' and withdrew the balance of account and paid it into the Risdon Credit Union, this time in the name of Marcus and Rachael.

9. Against this background, the Commissioner, in seeking to defend the amended assessments, argues, firstly, that what was done here was insufficient to divest the income from the parents to the children; alternatively, if the Board were to find that a trust had been created, no child being ``presently entitled'' to any income, the income from such a trust thus became the income of the trustees for the purposes of Div. 6; alternatively, if it were sought to support the claim by way of gifts, there was here insufficient evidence of a transfer of ownership.

10. The first submission, whilst strictly correct, is really somewhat tangential to the present claim. No attempt was made, nor indeed could have been made on the evidence, that there was here a mere assignment of income, the corpus remaining with the taxpayers. The avowed intention of the parents was to make a gift of the corpus to the three infants and I accept their evidence.

11. The Commissioner's second argument turns on the question whether or not the taxpayers succeeded in creating a trust. I feel no final resolution of this question is called for since, for tax purposes, the consequences would be the same: that is, the income of the trust would be taxable in the hands of the trustees.

12. That leaves the issue of whether or not the taxpayers have made a gift of the moneys in the children's account to the children. A gift, in law, involves the voluntary and gratuitous transfer of property from one person to another. It may be conditional, but condition apart, it is neither revocable nor terminable.

13. Applied to this case, I find that there was a conditional gift, in the sense that the use of the moneys was to be for educational purposes only. It is trite to point out that a gift must be perfected by delivery. However, in this

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ATC 210

case the donees, being young infants, a bank account in their name is sufficient evidence of delivery, albeit the parents remaining the sole signatories to the account.

14. It is argued on behalf of the Commissioner that the listing of the funds on loan applications as the parents' property militates against an unequivocal intention on their part to transfer the moneys to the three children. Against the whole of the background of this case, I am not prepared to conclude that the listing of these funds in this way on an application to the credit union which holds the children's account is necessarily inconsistent with a gift. It is at least equally consistent with the informal or loose family dealings which courts have frequently encountered and accepted in tax cases.

15. More serious is the freezing of $1,500 from the children's account as collateral. This certainly suggests that the taxpayers seemed to regard these funds as theirs to dispose over at their will.

16. However, on balance, I am not prepared to construe this document contra proferentem; that is, against the taxpayers as evidencing an intention, in 1978, to retain the money transferred to the children and credited to them in their name.

17. Indeed, had the Police Credit Union investigated this statement further, I have little doubt that on the documentary evidence in their possession, they would [not] have accepted the $8,000 in one case, and $8,600 in the other as the property of the taxpayers in view of the fact that the account was held in the name of the three children.

18. The oral evidence of both taxpayers is unequivocal; the money was to be available for the education of the children. Indeed Rachael, who is showing some academic promise, may well attend university in the future and will have these sums to draw on for her educational needs.

19. This view of the nature of the gift derives some support from the fact that when the funds were withdrawn from the Police Credit Union and deposited with the Risdon Credit Union, the two accounts were opened in the name of Marcus and Rachael who, for good measure, became the sole signatories.

20. It is beyond argument that at that point in time, that is in 1983, the two children had total control both de facto and de jure. The only loose end in the evidence is the ultimate fate of these funds in the event that no child has occasion to draw on them for educational purposes. This was not explored in evidence and, in any event, is highly academic since Rachael has started her secondary schooling at a private school this year and will incur expenditures clearly encompassed in the conditional gift. A gift is none the less a conditional gift notwithstanding that the donees have failed to advert at the time of perfecting the gift to the possibility that no one of the class to be benefited may qualify for a share of the funds. This deficit is well filled by recourse to the ``oh, of course'' doctrine; cf.
The Moorcock (1889) 14 P.D. 64 .

21. I am mindful that both taxpayers are laymen unversed with the niceties of perfecting gifts in law. I am satisfied as to their intention in 1978 and can see no good reason why these intentions should be frustrated for tax purposes.

22. In the result I find that the interest from the children's account is the income of the children. That is the only issue before us on objection. Neither penalty nor interest on the other accounts are before us. I would amend the assessments and amended assessments accordingly.